Why China’s new tariffs could make the US trade war even worse

A container ship unloads its cargo at the main port terminal in Long Beach, California, on May 10, 2019.
Mark Ralston/AFP/Getty Images

China is clearly unhappy about President Donald Trump’s escalating trade war — and it just retaliated in a way that could hurt global markets and further damage ties between the world’s two biggest economies.

On Friday, Trump raised tariffs from 10 percent to 25 percent on $200 billion of Chinese goods after Washington and Beijing failed to reach a long-sought trade deal despite days of intense talks.

China vowed to fight back, and officially did so Monday, announcing it would increase its own tariffs on $60 billion of American products. Around 5,000 items will now have duties increased up to 25 percent; those penalties will go into effect on June 1, according to China’s finance ministry.

“China’s tariff move is in response to the US unilateralism and trade protectionism,” the ministry said in a Monday statement. “China hopes that the US will return to the right track of bilateral trade talks, work together with China and meet each other halfway, to reach a win-win and mutually beneficial agreement on the basis of mutual respect.”

And there are signs that things could soon get even worse: The Trump administration is considering upping tariffs on all of China’s remaining imports — about $300 billion worth of products.

These latest moves make two things perfectly clear. First, the two countries aren’t close to striking an accord that would see China modify some of its trade laws in exchange for tariff relief from the US. Second, Washington and Beijing could soon have little to no free trade between them — stunting the global economy and increasing prices for consumers and importers in the US.

That last point isn’t just the view of multiple experts; it’s also the view from some inside the Trump administration. “Both sides will pay in these things,” Larry Kudlow, one of Trump’s top economic advisers, told Fox News on Sunday.

Why Trump wants to escalate the trade war

The Trump administration’s long-term strategic goal is to tank the Chinese economy for the benefit of the US. By placing ever-increasing tariffs on China, the hope is that fewer Americans buy its products and that foreign companies leave that market and set up shop in other countries.

That aim has been implicit for months, but the administration has recently made it extremely obvious.

In the Sunday Fox News interview, Kudlow noted the desired effect of the newly imposed tariffs: “The Chinese will suffer GDP losses and so forth with respect to a diminishing export market.”

And Trump himself tweeted that the tariffs may force corporations to find a new home. “Many Tariffed companies will be leaving China for Vietnam and other such countries in Asia,” the president tweeted on Monday morning.

There’s a bipartisan consensus that China has taken advantage of the US economy for years, mainly by stealing intellectual property and displacing millions of American jobs. That’s led to calls for the US government to curb Beijing’s unfair trade practices and ensure the US remains competitive in the global economy.

But trying to destroy China’s entire economy is a pretty extreme way to go about doing that, many experts say.

Trump’s misguided views about how tariffs work are also likely playing a big role in the administration’s hardline approach. Trump insists that tariffs force China to pay money to the US Treasury — which just isn’t true. When a tariff is placed on a Chinese good, it is the company importing that product or a consumer buying it who pays a higher price — not China. In other words, these tariffs are effectively a tax on Americans.

But for whatever reason, Trump continues to proclaim that tariffs are “paid to the United States by China” and that they result in “billions” of dollars pouring into the US Treasury.

And experts worry that his misguided strategic and personal views on tariffs may end up seriously damaging the world economy. “Trump is dragging a dangerous misconception into a critical moment in his standoff with the Chinese,” Chad Bown, a trade expert at the Peterson Institute for International Economics in Washington, said last week. “And American businesses and consumers stand to pay the price.”

The first reactions to the growing trade standoff aren’t good

The world has visibly started to panic about the latest US-China spat as global stocks tumbled on Monday. Here’s just a taste:

It’s of course possible that the markets will rebound over time, but these initial numbers are certainly a sign of growing worldwide worry that the US-China trade war will hurt the global economy. An April report from the International Monetary Fund, a world body that helps keep the global economy stable, backs that sentiment by noting the spat will lead to job losses in both countries.

Which means that unless the trade war ends soon — an unlikely prospect — the world economy will be held hostage by China’s malfeasance and Trump’s misguided views.

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